Shrinkage can be defined as the loss of inventory attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage, and cashier error.
Employers, especially in the wholesale and retail sector, are often faced with the problem of stock shortages in the workplace. Still, they have no proof which of the employees are responsible or how to proceed with the matter.
One of the first hearings I conducted years back at SEESA had to do with shrinkage/stock shortages in the workplace. The employer had a stock shortage of over R200 000.00 in a two-month cycle since the last stock take. This amounted to over five hundred items.
The employer was unsure how the stock could have gone unnoticed out of the store or who the perpetrator was. All six employees were charged with negligence, the manager included. It was clear that members of the public could not have caused the stock shortage. This was a small store with only one entrance and exit. He had a shrinkage policy, and all other measures within his means in place to try to avoid a stock loss.
A collective hearing was conducted, and all the employees were dismissed as they failed to inform the employer of theft. The logic behind this finding was that if the employee did not steal himself, he surely knew who stole but failed to report it. It remains the employee’s responsibility to inform an employer of any theft or shrinkage in the workplace. This duty to inform felt within the scope of the employee’s employment. The courts have been prepared to extend the concept of derivative misconduct, as a duty to disclose the identities of perpetrators of serious misconduct. Such a duty may also have deemed to exist where an employee knows or should know, that withholding information will harm to the employer, other employees, and the public.
In another hearing, a similar shortage occurred at another store. The employer in this scenario took every employee to a polygraph test. Two of the ten employees failed, and they were dismissed for dishonesty. The commissioner at the CCMA felt uncomfortable with this and thought that the company relied too much on the polygraph to establish dishonesty because the polygraph only indicated deception. He suggested that a blanket approach should have been followed where all employees get charged for possible negligence or conduct detrimental to the employer-employee relationship.
In cases of mass misconduct, collective hearings are permissible, provided that each employee is given a fair opportunity to state a case, should they wish to do so. One should always remember that negligence bears the same meaning as it does in other areas of law: the culpable failure to exercise the degree of care expected of a reasonable person. Negligence may manifest itself in acts or omissions like in the above scenarios where employees failed to take proper care of the stock or to inform the employer of theft. A company needs to have an existing stock loss or shrinkage policy that regulates this rule and specifies the applicable sanction to be implemented should the rule be contravened.
In the True Blue Foods-case, the concept of team misconduct had been thrown into the spotlight where the Labour Court concluded that it was lawful to dismiss employees working on the same shift at a local KFC outlet because of tremendous stock losses. In this case, none of the employees admitted that they observed anything or had anything to do with the alleged theft. Throughout their employment, employees were informed that they were responsible for the stock during their shift. The group of employees was subsequently dismissed and referred a matter to CCMA, where it was concluded that their dismissals were unfair considering the fact that the company was unable to prove their participation in the alleged theft or that they knew who was involved in the misconduct. On review, the Labour Court held that as with the principle of “common cause purpose”, there was no need to prove individual guilt. It was sufficient that the individual was a team member, who failed to meet its obligation to ensure that no stock losses. They were given an opportunity to come clean but chose not to do so. The CCMA award was set aside.
To ensure that collective hearings pertaining to stock losses are successful, my advice to employers are:
- Ensure that a shrinkage policy is implemented;
- If minor shortages occur ensure that employees are made aware of the problem and even issue them with warnings. Inform them that if the problem continues or escalates, more serious disciplinary action will follow;
- Ensure that all precautions are in place to try avoid further or any stock losses in future like door security, more frequent stocktakes, CCTV etc.
Contact your SEESA Legal Advisor to assist your business with your shrinkage policy, alternatively, leave your contact details on our website for a legal advisor to contact you.
About the Author:
Pieter Muller started his career at SEESA in 2011 and is currently a Legal Advisor. He obtained his LLB from the University of the Free State.
References:
- Workplace Law by John Grogan 12th Edition (JUTA) 2018
- https://ceosa.org.za/team-misconduct-collective-accountability
- Chauke & others v Lee Service Centre t/a Leeson Motors(1998) 19 ILJ 1441 (LAC)
- True Blue Foods (Pty) Ltd t/a Kentucky Fried Chicken (KFC) v Commission for Conciliation Mediation and Arbitration and Others (D441/11 (2014) ZALCD 70: (2015) 2 BLLR 1994 (LAC); (2015 36 ILJ 1375 (LC) (28)2015 ) 36 ILJ 1375 (LC) (28 November 2014)